Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, February 2, 2023

AI Summary. The authors argue that excess savings created by debt-financed government transfers do not disappear as households spend them down; instead they "trickle up" to wealthier households with lower propensities to spend, so the boost to aggregate demand fades only slowly. Their benchmark estimate puts this at roughly 5 years rather than a few quarters.

Adrien Auclert, Matthew Rognlie and Ludwig Straub National Bureau of Economic Research
Date Posted:
Is Database:
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Matt Rognlie @ludwigstraub @a_auclert argue that it will take up to five years for excess savings to work though the systems as individuals with higher marginal propensity to consume generate income for individuals with higher savings rates.

How long do excess savings from deficit-financed transfers boost demand?

Core argument: The authors' benchmark scenario suggests excess savings from debt-financed fiscal transfers affect aggregate demand for roughly 5 years, versus the conventional partial-equilibrium view that the effect dissipates within a few quarters.

Deficit-financed fiscal transfers generate excess savings. One person’s spending is another person’s income. As we show, taking this fact into account implies that excess savings from debt-financed transfers have much longer-lasting effects than a naive calculation would suggest. In a closed economy, unless the government pays down the debt used to finance the transfers, excess savings do not go away as households spend them down. Instead, the effect of excess savings on aggregate demand slowly dissipates as they “trickle up” the wealth distribution to agents with lower MPCs. Tight monetary policy speeds up this process, but this effect is likely to be quantitatively modest. The partial equilibrium scenario summarizes the conventional wisdom according to which the effect of excess savings will dissipate in a few quarters. By contrast, our benchmark scenario suggests that these effects will stick around for roughly 5 years.

Takeaways by Macro Roundup® AI

  1. The authors' benchmark scenario suggests excess savings from debt-financed fiscal transfers affect aggregate demand for roughly 5 years, versus the conventional partial-equilibrium view that the effect dissipates within a few quarters.
  2. In a closed economy, unless the government pays down the debt financing the transfers, excess savings do not go away as households spend them down, since one person's spending is another person's income.
  3. The authors argue the effect of excess savings on aggregate demand slowly dissipates as they "trickle up" the wealth distribution to agents with lower marginal propensities to consume, a process tight monetary policy speeds up by a likely modest amount.

Example

“…In the diagram above, you can simplify it to say that you have a three agent model: you have the poor, the rich, and the very rich. The very rich agent has a MPC of zero. For simplicity, assume that Treasuries are money and that the government issues a bunch of Treasuries and then distributes them to the three agents. Define the Treasuries that each agent has above the level that they want as Excess Saving. Further, assume that after the government does its transfer, it keeps debt outstanding constant. Assume the transfer takes place at time t. From time t, the poor are quickly depleting their assets, and the wealth of the poor at time t+1 is lower than it was at time t. Both the rich and the very rich are building savings and have higher wealth in time t+1 than in time t (the very rich have more bc they save all income; the rich have more because the spending of the poor boosts their income faster than they spend). After time t+1, when the spending impulse of the poor naturally slows down, the wealth of both the poor and the rich is being depleted as it flows to the very rich. At intermediate stages of time, the poor have already spent their excess savings, but the rich still have a lot; at the last stage, even the rich have gone through their excess savings and all excess savings are held by the MPC=0 individual (the very rich). …”

Matt Rognlie @ludwigstraub @a_auclert argue that it will take up to five years for excess savings to work though the systems as individuals with higher marginal propensity to consume generate income for individuals with higher savings rates.

Example

“…Deficit-financed fiscal transfers generate excess savings. One person’s spending is another person’s income. As we show, taking this fact into account implies that excess savings from debt-financed transfers have much longer-lasting effects than a naive calculation would suggest. In a closed economy, unless the government pays down the debt used to finance the transfers, excess savings do not go away as households spend them down. Instead, the effect of excess savings on aggregate demand slowly dissipates as they “trickle up” the wealth distribution to agents with lower MPCs. Tight monetary policy speeds up this process, but this effect is likely to be quantitatively modest. The partial equilibrium scenario summarizes the conventional wisdom according to which the effect of excess savings will dissipate in a few quarters. By contrast, our benchmark scenario suggests that these effects will stick around for roughly 5 years….”

Core of paper

“…Because excess savings and their distribution across the population intuitively matter for aggregate demand, economists have paid a considerable amount of attention to estimating both. In this paper, we provide a tractable Heterogeneous Agent New Keynesian model that explicitly maps the distribution of excess savings to the path of output, and that explains the process by which their effect dissipates. We use this framework to estimate the likely contribution of excess savings to aggregate spending in the coming years under various assumptions about the marginal propensities to consume (MPCs) of agents holding the savings and scenarios for monetary policy. Our framework recognizes that one person’s spending is another person’s income. As we show, taking this fact into account implies that excess savings from debt-financed transfers have much longer-lasting effects than a naive calculation would suggest. In a closed economy, unless the government pays down the debt used to finance the transfers, excess savings do not go away as households spend them down. Instead, the effect of excess savings on aggregate demand slowly dissipates as they “trickle up” the wealth distribution to agents with lower MPCs. Tight monetary policy speeds up this process, but this effect is likely to be quantitatively modest….”

Implication For US Economy Post-Pandemic

“…Table 1 summarizes our results by displaying the duration of output and excess savings for the middle class and the rich under each of our scenarios. The partial equilibrium scenario summarizes the conventional wisdom according to which the effect of excess savings will dissipate in a few quarters. By contrast, our benchmark scenario suggests that these effects will stick around for roughly 5 years. These numbers are larger if MPCs are lower, and are robust to plausible alternative calibrations. Rational expectations about the future boom make the response much larger on impact due to current spending out of anticipated income, which turns out to speed up the trickling up process. Tight monetary policy, on the other hand, also speeds up tickling up, but it does so by mitigating the effects of excess savings on demand. In either case, however, the duration of excess savings and output remains more than twice as long as the conventional wisdom suggests….”

Adrien Auclert, Matthew Rognlie and Ludwig Straub, “The Tricking Up Excess Savings,” National Bureau of Economic Research, January 2023, https://www.nber.org/papers/w30900

Brandon Adams Comment:

“We think you should know about this paper (“The Trickling Up of Excess Savings” by Adrien Auclert, Matthew Rognlie, and Ludwig Straub) even though we expect that you would disagree with the main findings and we think that you might find the model overly stylized. The model is not especially complex. A debt-financed fiscal transfer starts the action. This transfer is then spent by its recipients in accordance with their marginal propensity to consume. The poor, who have a high marginal propensity to consume, extinguish their excess savings rather quickly. Eventually the money ends in the hands of the lowest marginal propensity to consume individuals, though this process takes some time. The model is a Heterogenous Agent New Keynesian model. Since the model is New Keynesian, it is demand-centric, and is not concerned with some of the things you might be concerned with (savings, investment, incentives). So, as you point out, the “generate income” process is a big magical. The model assumes that after a debt-financed fiscal transfer is spent, the spent money is income for someone else; that income will in turn be spent and will become income for someone else, ad infinitum, until all the money comes to rest with the wealthiest agent, who has a zero marginal propensity to consume The result of this assumption is that any initial transfer, no matter how targeted to the poor, eventually ends up raising wealth inequality. Again, it’s a very stylized model, and all wealth comes to rest with one agent (who has an MPC of zero)….”

AI Summary. The article argues debt-limit legislation should claw back unspent funds from $6tn in pandemic spending, saving $255bn over two years. Repeated extensions of the Covid emergency more than doubled food-stamp spending, added 20m people to Medicaid and children's health insurance rolls at a cost of $135bn, and extended the student-loan payment moratorium at a cost approaching $275bn.

Phil Gramm and Michael Solon Wall Street Journal
Date Posted:

Phil Gramm and Michael Solon argue that officially ending the pandemic emergency, clawing back unspent emergency funds, and eliminating eligibility expansions would save at least $255 billion in 2023-24 alone. @WSJ

Phil Gramm and Michael Solon argue that officially ending the pandemic emergency, clawing back unspent emergency funds, and...

Should debt-limit legislation claw back unspent emergency pandemic spending?

Core argument: Clawing back unspent funds from the $6 trillion in pandemic spending as part of a debt-limit amendment would save $255 billion in 2023-24 alone, according to the author.

The Covid health emergency, like a war, enabled the government to vastly expand its power and spending. Now that the “war” is over, government resists receding to its pre-pandemic level. The debt-limit amendment should not only claw back unspent funds from the $6 trillion pandemic spending orgy, which would save $255 billion in 2023-24 alone. By repeatedly extending the pandemic emergency every 90 days, the Biden administration has expanded the number of households eligible for food stamps and dramatically increased average benefits, more than doubling food-stamp spending. The administration has used the Covid emergency to add 20 million people to the Medicaid and State Children’s Health Insurance Program rolls, sending costs up by $135 billion. The administrative deadline for the moratorium on student-debt payments has been extended eight times, at a cost approaching $275 billion.

Takeaways by Macro Roundup® AI

  1. Clawing back unspent funds from the $6 trillion in pandemic spending as part of a debt-limit amendment would save $255 billion in 2023-24 alone, according to the author.
  2. Repeated 90-day extensions of the Covid emergency by the Biden administration expanded food-stamp eligibility and average benefits, more than doubling food-stamp spending, and added 20 million people to Medicaid and the State Children's Health Insurance Program, raising costs by $135 billion.
  3. The administrative deadline for the moratorium on student-debt payments has been extended eight times, at a cost approaching $275 billion.

AI Summary. The World Management Survey, based on over 20,000 interviews with medium-sized firms, hospitals, and schools across 35 rich and emerging economies, finds large differences in management practices between countries that persist across borders. Multinationals score higher than domestic firms wherever they locate, managing foreign offices to their home-country standard.

Economist Staff The Economist
Date Posted:

.@TheEconomist cites World Management Survey data showing that American firms are better managed than their peers. @I_Am_NickBloom and @johnvanreenan argue that half of the productivity gap btw Britain and US can be attributed to poor management.

Do management practices differ across countries and persist across borders?

Core argument: The World Management Survey, run by John Van Reenen and Nicholas Bloom since 2003, has conducted over 20,000 interviews with medium-sized firms, hospitals, and schools across 35 countries, spanning both rich and emerging economies.

Since 2003 John Van Reenen and Nicholas Bloom have been developing and running the World Management Survey (WMS). To date, the WMS has carried out over 20,000 interviews with medium-sized firms, hospitals, and schools in 35 countries, some rich economies, and others emerging markets. The results allow for a ranking of countries based on differences in their firms’ management practices. Such differences are not just large; they also persist across borders. Among the WMS’s findings is the fact that companies’ offices abroad tend to be managed as well as those in their home country, meaning that the London branch of an American business, say, will typically be managed to the same standard as its offices in New York or Chicago. (Multinationals achieve higher management scores than domestic firms wherever they locate.)

Takeaways by Macro Roundup® AI

  1. The World Management Survey, run by John Van Reenen and Nicholas Bloom since 2003, has conducted over 20,000 interviews with medium-sized firms, hospitals, and schools across 35 countries, spanning both rich and emerging economies.
  2. The World Management Survey finds differences in firms' management practices across countries are large and persist across borders, allowing countries to be ranked by their firms' management practices.
  3. Companies' foreign offices tend to be managed as well as those at home, so the London branch of an American business typically matches its New York or Chicago standard, with multinationals scoring higher than domestic firms wherever they locate.

AI Summary. Globalization has plateaued, with cross-border lending and trade expanding more slowly since the global financial crisis. Geo-economic fragmentation may offer strategic advantages for some countries in selected cases but is very likely to impose aggregate economic costs—higher import prices, segmented markets, reduced access to technology and labor, and lower productivity—while complicating multilateral cooperation.

Shekhar Aiyar, Jiaqian Chen, et al International Monetary Fund
Date Posted:

Noting that globalization has had ebbs and flows, @IMFNews argues that “geoeconomic fragmentation” (GEF) or policy-driven deglobalization is underway that could put an end to 2008-2021 “Slowbalization” period.

Does splitting the global economy into blocs impose aggregate economic costs?

Core argument: The "Slowbalization" following the 2008–10 global financial crisis has featured slower expansion of cross-border lending and trade, with globalization having plateaued.

The “Slowbalization” that followed the global financial crisis (2008–10) has been characterized by a slower expansion of cross-border lending and trade. Globalization has plateaued. While fragmentation may entail strategic advantages for some countries in selected cases, it is very likely to involve significant economic costs in the aggregate. The costs would include higher import prices, segmented markets, diminished access to technology and to both skilled and unskilled labor, and ultimately reduced productivity which may result in lower living standards. GEF is likely to complicate multilateral cooperation in critical areas such as climate change mitigation and pandemic preparedness.

Takeaways by Macro Roundup® AI

  1. The "Slowbalization" following the 2008–10 global financial crisis has featured slower expansion of cross-border lending and trade, with globalization having plateaued.
  2. Geo-economic fragmentation is very likely to impose significant aggregate economic costs, including higher import prices, segmented markets, diminished access to technology and to skilled and unskilled labor, and reduced productivity that may lower living standards.
  3. Geo-economic fragmentation is likely to complicate multilateral cooperation in critical areas such as climate change mitigation and pandemic preparedness, though it may entail strategic advantages for some countries in selected cases.

AI Summary. The private sector's share of the market value of China's 100 largest listed companies fell to 42.8% from 44.5% six months earlier, extending a decline from a peak of 55.4%. That share nonetheless remains above its level throughout the 2010s, when it rose from 8% to 36%.

Tianlei Huang and Nicolas Véron Peterson Institute for International Economics
Date Posted:

China’s private sector share of the top 100 firms’ market capitalization declined to 42.8% at the end of 2022, down from 55.4% in 2021. @PIIE

Is the private sector's share of China's largest listed companies shrinking?

Core argument: The private sector's share of the market value of China's 100 largest listed companies fell from 44.5% at mid-2022 to 42.8% at year-end 2022, according to PIIE's semiannual state vs. private company tracker.

Latest data from PIIE’s semiannual tracker, “China’s state vs. private company tracker: Which sector dominates?”—which tracks market value of China’s top 100 listed companies (ranked by market value)—show a continued decline of the share of the private sector, from 44.5 percent at mid-2022 to 42.8 percent at year-end, continuing the downward trend of the previous two half-year periods from the 55.4 percent peak observed in mid-2021. Still, the private sector share remains higher than it was throughout the 2010s, when it rose dramatically from 8 percent at end-2010 to 36 percent at end-2019.

Takeaways by Macro Roundup® AI

  1. The private sector's share of the market value of China's 100 largest listed companies fell from 44.5% at mid-2022 to 42.8% at year-end 2022, according to PIIE's semiannual state vs. private company tracker.
  2. The private sector share has declined over three consecutive half-year periods from its mid-2021 peak of 55.4%, per PIIE's tracker of China's top 100 listed companies ranked by market value.
  3. The 42.8% private share at end-2022 remains above levels throughout the 2010s, when the private sector share rose from 8% at end-2010 to 36% at end-2019.

AI Summary. Adjusted for inflation, the U.S. national house price index is 3.6% below its recent peak and the 20-city composite index is 5.2% below its peak, though real house prices remain above earlier bubble-peak levels. Affordability improved slightly as both mortgage rates and house prices declined, after reaching its worst level since 1982.

Bill McBride Calculated Risk
Date Posted:

In real terms the Case-Shiller National Index is 3.6% below last year’s peak, but remains 14% above its prior peak level in 2006. @calculatedrisk

Are inflation-adjusted house prices falling below their recent peak?

Core argument: In real terms, the National index stands 3.6% below its recent peak and the Composite 20 index 5.2% below its 2022 peak, though inflation-adjusted house prices remain above the bubble peak levels.

In real terms, the National index is 3.6% below the recent peak, and the Composite 20 index is 5.2% below the recent peak in 2022. In real terms, house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak. Affordability improved slightly in November as both mortgage rates and house prices declined. In October, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%.

Takeaways by Macro Roundup® AI

  1. In real terms, the National index stands 3.6% below its recent peak and the Composite 20 index 5.2% below its 2022 peak, though inflation-adjusted house prices remain above the bubble peak levels.
  2. Housing affordability improved slightly in November as both mortgage rates and house prices declined, following October, when houses were the least "affordable" since 1982, when 30-year mortgage rates were over 14%.
  3. Real house prices show an upward slope, and it has been about 17 years since the previous peak.

AI Summary. Planning for the Australia-UK-US nuclear submarine partnership has been complicated by longstanding US restrictions on sharing technology and information, which apply to Australia and the UK despite their membership in the Five Eyes intelligence-sharing network. Key unresolved decisions include the submarine design and build location, amid concerns that US shipyards lack capacity for additional work.

Demetri Sevastopulo, Gideon Rachman, et al Financial Times
Date Posted:

Officials are increasingly confident the technology transfer hurdles to the Australia/UK/US (Aukus) nuclear submarine deal will be overcome, and that the partners are “close to an announcement. @ft”

Officials are increasingly confident the technology transfer hurdles to the Australia/UK/US (Aukus) nuclear submarine deal...

Do US technology-sharing restrictions complicate a trilateral nuclear submarine partnership?

Core argument: Australian deputy prime minister Richard Marles told the FT that the AUKUS partners are "close to an announcement" after an 18-month planning phase on how and where to build the submarines and what US technology and information would be required.

Australian deputy prime minister Richard Marles told the FT that the partners were “close to an announcement” following an 18-month planning phase to determine how and where to build the boats and what US technology and information would be required. But the planning has been complicated by longstanding US curbs on technology and information sharing, which apply to Australia and the UK even though the countries are members of the Washington-led Five Eyes intelligence sharing network that also includes Canada and New Zealand. Two crucial decisions will be the choice of submarine design and where the submarines will be built, given concerns that America’s shipyards do not have the capacity to take on more work.

Takeaways by Macro Roundup® AI

  1. Australian deputy prime minister Richard Marles told the FT that the AUKUS partners are "close to an announcement" after an 18-month planning phase on how and where to build the submarines and what US technology and information would be required.
  2. AUKUS planning has been complicated by longstanding US curbs on technology and information sharing that apply to Australia and the UK despite their membership in the Five Eyes intelligence network alongside Canada and New Zealand.
  3. Two crucial AUKUS decisions are the choice of submarine design and the build location, amid concerns that America's shipyards lack the capacity to take on more work.

Friday, February 3, 2023

AI Summary. In a study of larger U.S. companies bought by private equity, more than 70% hired new chief executives, and over 75% of those were external hires, unlike public companies where internal promotions dominate. The authors estimate these executives' pay exceeds that at similar-sized public companies, suggesting an active market for chief executives.

Paul Gompers, Steven Kaplan, and Vladimir Mukharlyamov National Bureau of Economic Research
Date Posted:

.@KaplAnalysis examines large US companies purchased in LBO transactions and finds that 71% of the companies hired new CEOs, and more than 75% of these were external hires. He concludes that “firm-specific human capital is relatively unimportant.”

.@KaplAnalysis examines large US companies purchased in LBO transactions and finds that 71% of the companies hired new CEOs,...

Is there an active outside market for chief executives?

Core argument: More than 70% of U.S. companies with enterprise value above $1 billion bought by private equity firms between 2010 and 2016 hired new CEOs, of whom more than 75% were external hires and 67% complete outsiders.

We study the market for CEOs among larger U.S. companies (enterprise value greater than $1 billion) purchased by private equity firms between 2010 and 2016. More than 70% of those companies hire new CEOs. Of these, more than 75% are external hires with 67% being complete outsiders. These results are strikingly different from studies that look at public companies, who find that 72% of new CEOs are internal promotions while 80% are internal promotions, former executives, or board members. The most recent experience of 70% of the outside CEOs was at a public company with 32% at an S&P 500 company. Almost 50% of the external hires have some previous experience at an S&P 500 company. The median and average buyout in our sample earned roughly 2.5 times on its equity investment. This is interesting given that the public-to-private deals in our sample were not particularly poor performers before they were bought. Because private equity investors are paid strongly for performance (through their carried interest or profit share of 20% on most funds), private equity investors have strong incentives not to provide rents to their CEOs. The pay of CEOs in private-equity funded companies, therefore, should be relatively rent-free. Using the performance of the buyouts and survey evidence on buyout equity incentives, we estimate the compensation buyout CEOs earn and find that the magnitude is much higher than that for similar-sized public companies and comparable to or slightly lower than that of S&P 500 CEOs. The results that top executives move from public companies to private equity funded companies at competitive compensation levels suggest that the broader market for CEOs is quite active and that, at least for private equity-funded companies, firm-specific human capital is relatively unimportant.

Takeaways by Macro Roundup® AI

  1. More than 70% of U.S. companies with enterprise value above $1 billion bought by private equity firms between 2010 and 2016 hired new CEOs, of whom more than 75% were external hires and 67% complete outsiders.
  2. Studies of public companies find that 72% of new CEOs are internal promotions and 80% are internal promotions, former executives, or board members, in contrast to the buyout sample.
  3. The median and average buyout in the sample earned roughly 2.5 times its equity investment, and the authors estimate buyout CEO pay is much higher than at similar-sized public companies and comparable to or slightly below S&P 500 CEO pay.

AI Summary. U.S. employers added 517,000 jobs in a month and the unemployment rate fell to 3.4%, the lowest in more than 53 years, according to the Labor Department. Average hourly earnings rose 4.4% from a year earlier, down from a revised 4.8%, a gradual slowing that suggests employers are finding it easier to recruit workers.

David Harrison Wall Street Journal
Date Posted:

The unemployment rate fell to a 53-year low at 3.4%, but nominal average hourly earnings slowed to 4.4% year-over-year down from 4.8% in December. @WSJ

Is the labor market strengthening even as wage growth slows?

Core argument: U.S. employers added 517,000 jobs in January and the unemployment rate fell to 3.4%, the lowest in more than 53 years, according to the Labor Department.

U.S. hiring accelerated sharply to 517,000 jobs in January and the unemployment fell to 3.4%, the lowest rate in more than 53 years, the Labor Department said Friday. Average hourly earnings grew 4.4% in January from a year earlier, down from a revised 4.8% in December, the Labor Department said Friday. Wage increases have been gradually slowing, suggesting employers are finding it easier to recruit new workers.

Takeaways by Macro Roundup® AI

  1. U.S. employers added 517,000 jobs in January and the unemployment rate fell to 3.4%, the lowest in more than 53 years, according to the Labor Department.
  2. Average hourly earnings rose 4.4% in January from a year earlier, down from a revised 4.8% in December, the Labor Department said.
  3. The gradual slowing in wage increases suggests employers are finding it easier to recruit new workers.

AI Summary. Monthly data suggest the price impact of normalization in the production, distribution, and demand for manufactured goods may already have peaked. Federal Reserve officials say they are now focusing on personal consumption services prices excluding energy and housing, a broad segment relatively shielded from idiosyncratic forces that should reflect underlying inflationary conditions.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes that PCE is running at ~4.5% a year vs. 2% before the pandemic, and suggests that the Fed needs to do more if it is to reach its 2% target. There has been a reversal of temporary factors,” but services PCE inflation remains stubborn.

Has goods price normalization already peaked, shifting focus to services inflation?

Core argument: Monthly data suggest the price impact of normalization in the production, distribution, and demand for manufactured goods may already have peaked.

If excessive price increases were “transitory” on the way up, then they are also “transitory” on the way down. Monthly data suggest that the price impact of normalization in the production, distribution, and demand for manufactured goods may already have peaked. Fed officials have repeatedly said that they are now focusing on PCE services prices excluding energy and housing. This is a relatively broad swathe of the economy that should be relatively—although not completely—shielded from idiosyncratic forces and should therefore represent underlying inflationary conditions.

Takeaways by Macro Roundup® AI

  1. Monthly data suggest the price impact of normalization in the production, distribution, and demand for manufactured goods may already have peaked.
  2. Fed officials have repeatedly said they are now focusing on PCE services prices excluding energy and housing as a gauge of underlying inflationary conditions.
  3. PCE services prices excluding energy and housing cover a relatively broad swathe of the economy that is relatively, though not completely, shielded from idiosyncratic forces.

AI Summary. A consumption tax would fund government with less economic distortion than the current income and estate tax system, which combines high statutory rates with extensive exemptions, high compliance costs, and unfairness. Exempting an initial amount of consumption or expanding rebates can prevent such a tax from being regressive.

John Cochrane Wall Street Journal
Date Posted:

.@JohnHCochrane argues that our existing tax system of “high statutory rates with a Swiss cheese of exemptions, immense cost, unfairness and distortion” should be replaced; he thinks a consumption tax would be more transparent and efficient.

.@JohnHCochrane argues that our existing tax system of “high statutory rates with a Swiss cheese of exemptions, immense...

Would a consumption tax fund government with less distortion than income taxes?

Core argument: The author argues the U.S. income and estate tax system is broken, combining high statutory rates with a "Swiss cheese" of exemptions that produces immense cost, unfairness, and economic distortion.

Our income and estate tax system is broken. It has high statutory rates with a Swiss cheese of exemptions, immense cost, unfairness, and distortion. A consumption tax, with none of the absurd complexity of our current taxes, is the answer. It funds the government with the least economic distortion. A consumption tax need not be regressive. It’s easy enough to exempt the first few thousand dollars of consumption or add to the rebate. Taxes overall must finance what the government spends. Collecting it in one tax rather than lots of smaller taxes doesn’t change the overall rate. It’s better for voters to see how much the government takes.

Takeaways by Macro Roundup® AI

  1. The author argues the U.S. income and estate tax system is broken, combining high statutory rates with a "Swiss cheese" of exemptions that produces immense cost, unfairness, and economic distortion.
  2. A consumption tax funds the government with the least economic distortion and avoids the complexity of current income and estate taxes, according to the author.
  3. The author contends a consumption tax need not be regressive, since the first few thousand dollars of consumption can be exempted or offset by a rebate, and that collecting revenue in one tax rather than many does not change the overall rate.

AI Summary. The US cancelled a secretary of state visit to China after the Pentagon said it detected a Chinese spy balloon over nuclear missile sites in Montana, which American officials said lingered longer than previous such flights. China called it a civilian meteorological airship blown off course, while Canada summoned China's ambassador over a potential second incident.

Demetri Sevastopulo Financial Times
Date Posted:

US Secretary of State Antony Blinken has canceled a weekend visit to China after a Chinese spy balloon violated American airspace. @Dimi

US Secretary of State Antony Blinken has canceled a weekend visit to China after a Chinese spy balloon violated American...

Does a suspected surveillance balloon derail US-China diplomatic talks?

Core argument: US Secretary of State Antony Blinken canceled his weekend visit to China after the Pentagon said it discovered a Chinese spy balloon flying over sensitive nuclear missile sites in Montana.

US secretary of state Antony Blinken has canceled his weekend visit to China after the Pentagon said it discovered a Chinese spy balloon that has been flying over sensitive nuclear missile sites in the western state of Montana. China rejected suggestions that it was a spy balloon, saying it is rather a “civilian airship used for research, mainly meteorological, purposes” that deviated from its planned course because of winds and “limited self-steering capability” “The Chinese side regrets the unintended entry of the airship into US airspace due to force majeure,” it said in an unusual statement.  American officials said China had previously flown spy balloons over the country but that this one spent more time overhead. Canada separately said it was monitoring a “potential second incident” without providing any details. Canada’s foreign ministry said it had summoned China’s ambassador to Ottawa to protest against the balloon and that it would “continue to vigorously express our position to Chinese officials through multiple channels.”

Takeaways by Macro Roundup® AI

  1. US Secretary of State Antony Blinken canceled his weekend visit to China after the Pentagon said it discovered a Chinese spy balloon flying over sensitive nuclear missile sites in Montana.
  2. China rejected the spy balloon characterization, calling it a "civilian airship used for research, mainly meteorological, purposes" that deviated from its planned course because of winds and "limited self-steering capability.".
  3. American officials said China had previously flown spy balloons over the United States but that this one spent more time overhead, while Canada said it was monitoring a "potential second incident" and summoned China's ambassador to Ottawa.

AI Summary. China's People's Liberation Army has publicly stated that its YJ-21 anti-ship hypersonic missile reaches a terminal speed of Mach 10, cannot be intercepted by any existing anti-missile system, and can deliver lethal strikes against enemy ships. Chinese analysts read the disclosure as a warning to the US amid tensions over the Taiwan Strait.

Amber Wang South China Morning Post
Date Posted:

The PLA used a social media post to announce the performance of its new anti-ship missile with a terminal speed of Mach 10, claiming the missile cannot be intercepted by any anti-missile weapons systems. @SCMPNews

The PLA used a social media post to announce the performance of its new anti-ship missile with a terminal speed of Mach 10,...

Is China publicizing its hypersonic anti-ship missile to warn the US?

Core argument: China's YJ-21 anti-ship hypersonic missile has a terminal speed of Mach 10 and cannot be intercepted by any anti-missile weapons system in the world, according to an article posted by the official Weibo account of the PLA Strategic Support Force.

For the first time, the PLA has officially revealed the performance of its advanced anti-ship hypersonic missile, sending a warning to the US amid high tensions in the Taiwan Strait, Chinese analysts said. China’s YJ-21, or Eagle Strike-21, has a terminal speed of Mach 10, cannot be intercepted by any anti-missile weapons system in the world, and can launch lethal strikes toward enemy ships, according to an article posted by the official Weibo account of the People’s Liberation Army Strategic Support Force.

Takeaways by Macro Roundup® AI

  1. China's YJ-21 anti-ship hypersonic missile has a terminal speed of Mach 10 and cannot be intercepted by any anti-missile weapons system in the world, according to an article posted by the official Weibo account of the PLA Strategic Support Force.
  2. The PLA has for the first time officially revealed the performance of the YJ-21, or Eagle Strike-21, which the Weibo post says can launch lethal strikes toward enemy ships.
  3. Chinese analysts read the PLA's disclosure of the YJ-21's capabilities as a warning to the US amid high tensions in the Taiwan Strait.